Sunday, February 15, 2015

An essay for the course: Corporate Responsibility in Transnational and International Law

By Priti Patnaik, June 2012

Michel Foucault had declared that we are living in an era of the end
of politics. Some would argue that it is an era of the end of governance and of governmentality – as
that site of social and public consciousness that aspires to serve public interest (Baxi 1995:3).

The notion that only states can be held accountable for violations of
human rights, is being challenged with the rising economic and social power of non-state
actors such as transnational corporations as a result of an integrated global economy that they
helped build (Muchlinski 2000:1). Corporations have assumed roles of the state in some areas. Their
activities do have an impact on human rights and hence they must be made responsible for protecting
such rights. There are gaps in legal regulation to govern this space, but we must go beyond legal
possibilities to address how corporations can be held accountable for such obligations.

In this paper, we first look at whether corporations are individuals,
if they are subjects under international law or have a personality. Corporations have rights.
Therefore, they must also have responsibilities and obligations. We look at human rights obligations
of corporations arising from their operations. We consider if existing systems of transposing human
rights obligations will work.

Finally, we review emerging frameworks that could make corporations
liable for human rights violations.

CORPORATIONS: PARTICIPANTS IN THE
INTERNATIONAL LEGAL SYSTEM

The ‘corporate form’ is barely recognized under international law.
There is no transnational regime of human rights law governing transnational activities of corporation.
Therefore, corporations have been operating in a “legal vacuum” because international law imposes
no direct obligation on corporations. (Kinley & Tadaki 2004: 935). Only states have a
vicarious responsibility to protect

human rights that could be threatened as a result of corporate
negligence. It has been argued that for transnational corporations to have human rights obligations, they
must be subjects under international law.

Under international law, individuals are not permitted to be bearers
of duties and responsibilities and hence they are objects. According to the positivist approach, only
states were subjects of international law. But with the evolution of international
organizations, this began to change.

International law only operates horizontally between entities
recognized as having international legal personality. States and international organizations are entities
that have been described having “international personality”. Is there a correlation between international
legal personality and responsibility?

The concept of a legal personality is tied to the capacities that such
a personality can have. Besides, those capacities are determined by international law. Traditionally,
states were seen as entities making international law. Therefore, we will need a new set of rules
to determine if corporations can have legal personalities, can they be subjects of international law
and hence be regulated as entities

having capacities under international law. In other words, if a
corporation were to become a subject of international law, they will have responsibilities under
international law by virtue of being a personality. But this could be problematic, since an international
personality could also have immunity. So corporations can claim immunity even within their
national court systems.

Rosalyn Higgins, former president of the International Court of
Justice, has advocated going beyond distinctions between subjects and objects and believes that
transnational corporations are “participants”, in the international legal system with the capacity to
bear rights and duties under international law. Although it may be utopian, some commentators are
of the view that international law must recognize multinationals as subjects, as a way to
impose international regulations on such “subjects”.

CORPORATIONS HAVE RIGHTS

Many transnational corporations have outsized influence and power
compared to states, it has therefore been argued that “with power should come responsibility”
(Weissbrodt & Kruger). These corporations must be responsible for the impact their rights can have.
In order to make corporations responsible for human rights obligations, we must consider that
corporations exercise power and

hence this power must be regulated by bestowing ‘responsibility’.

Activities of corporations have transcended private spheres and have
taken on functions that were hitherto classified as state functions. So this shift in function has
to be matched with a shift in responsibility. This shift was first seen during the colonial era, where companies
such as the British East India Company were not only at the forefront of trading activities, but also
administered territories they operated in. Post colonization in the second phase, governments of the
former colonies “were lobbying for a new North-South dynamic” (Ratner 2001: 455), and saw
foreign corporations as agents of the North. There were attempts at ‘equalization’ that saw
expropriations of foreign investment. Contractual negotiations sought to put the host country
and the foreign company at the same level. During the third phase, called globalization, developing
countries sought to attract foreign direct investment. As result, there was unprecedented
investment, to the point, where these companies have been embedded in host economies. The period also saw a
proliferation of bilateral investment treaties, accompanied by lower domestic regulation to
accommodate foreign investors.

‘A race to the bottom’ has ensured that domestic governments look the
other way, giving latitude to foreign investors to violate those standards that are considered
inviolable in their home countries. Like capital and labor, law becomes a commodity or a factor of
production, on which corporations base their business decisions. This has also been referred to as the
‘Delaware effect’. (Backer 2008:505) Corporations can go forum shopping to jurisdictions that
have mild regulations. Further, internationalisation of companies has resulted in
incorporation of such conglomerates across separate subsidiaries. Every corporate actor stands as an
autonomous individual and one legal person may own another. (Backer 2008: 504). This makes it
possible for corporation to build, large, complex networks. This allows corporations to “disperse globally,
but limit liability”. Links, thus, established between entities, has made them increasingly more
independent of governmental regulation both in home and host states.

Many corporations have become more powerful than states and have
greater resources to dispense with, to meet their objectives. In turn, governments have depended on
corporations to perpetuate human rights abuses.

The question therefore, is not whether corporation have duties under
international law, but what those obligations are. (Ratner 2001 :476) International law must and
should provide for such obligations and the scope for such obligations must be derived in the
context of corporate activity. (Ratner 2001: 449). Should the international legal process provide
human rights obligations directly

on corporations? Traditionally, corporations could only obey the law, but not have
duties towards, say, protecting human rights, since that was the prerogative of the state. But
changing nature of their activities, makes them duty-bound to respect and protect human rights.

HOW TO MAKE CORPORATIONS
RESPONSIBLE FOR HUMAN RIGHTS OBLIGATIONS

Human rights conventions are not tailored towards corporate conduct.
The UN Universal Declaration of Human Rights does not impose obligations on anyone. These are
non-binding documents and are not part of customary international law. As a result do not impose
legal duties on corporations. The Nuremberg Trials and the UN General Assembly, both affirmed that
the individual and not only the state, is covered under the international law duties with respect
to waging of wars of aggression, crimes against humanity and war crimes. But the Nuremberg Trials did
not impose responsibility on the Nazi party, but on the people in the party, although it declared
the party as a criminal organization. We do know that international criminal responsibility
does not apply to corporations,

but to individuals.

Traditionally, treaties in international criminal law including the
Genocide Convention or the Torture Convention , focus on individuals and not on the corporate entities.
There is no system that identifies responsibility for non-state actors or that formulates
questions of corporate liability.

States have three kinds of responsibilities – the obligation to
respect, to protect and to fulfil. While governments have the responsibility to protect rights of all, they
further have ‘derivative obligations’to protect such rights against everyone. The idea is to examine to
what extent is the state responsible to protect human rights against the abuses of, say, a
corporation. While transposing

human rights obligations to non-state actors, especially to
corporations, is far from easy. What can be done instead, is to make the state responsible to protect human
rights obligations in the light of corporate conduct.

Under laws of state responsibility, primary rules are substantive
obligations of states in the various areas of international law, secondary rules elaborate what it means
for a state to be legally accountable for violations of these duties (Ratner 2001: 490). The
laws of state responsibility also spell out under what circumstances the act of a private individual may
be attributed to the state. Similarly, there are primary and secondary rules governing
individuals.

Since corporations are significant actors, they must assume
obligations placed on states or individuals, based on these rules of responsibility (Ratner 2001:
496). But merely bringing corporations under this ambit of duties may not be the solution. For
example, extending duties of states to corporations may not be desirable, since their functions may
differ. Or, even if corporations are treated as a natural person, businesses would then be responsible
for the same international crimes as individuals (Ratner 2001: 494). There are barriers to
transposing primary rules to corporations. Similarly, since secondary rules are based on actions of
states, transposing these rules to corporations may not be suitable. New rules of attribution may need
to be made keeping corporations in mind.

Besides, corporations are designed to maximize profit, not to assume
broad-based welfare functions of states. (Kinley & Tadaki 2004: 961). To extend duties and human
rights obligations of states to corporations, while ignoring their functions, may not be appropriate.
But corporations must carry out welfare functions such as: the right to education by making sure
that child labor is abolished, for example. The right to a clean environment can be protected, if
corporations behave within the requirements of law.

In his article ‘Corporation and Human Rights’, Steven R Ratner
theorizes on corporate responsibility. He says the relationship of the corporation with the state is an
important indicator: tighter the nexus between the state and the corporation, more exacting are the
obligations on the latter. Even as this makes the state liable for the actions of the corporation, it also
makes the corporation itself liable.

Also, corporations may be acting on behalf of the government.

Just as a government has obligations to its population within its
territory, corporation owes a duty of care to people within their ‘sphere of influence’ or those that are at
proximity to its operations. But how far one can extend the concept of ‘jurisdiction’ to corporations
remains to be seen. To what extent can corporations be legitimately held responsible for human
rights infringements of their

subsidiaries, for example? (Kinley & Tadaki 2004: 961).

Human rights law is based on a balancing of interests between the
state and the rights of the individual. Similarly, a corporation’s responsibility must balance
rights of the individual and its own business interests (Ratner 2001: 513) How can such a balance be
achieved? For example, can a corporation infringe on a right such as the right to a criminal trial,
by withholding sensitive

information?

Is it possible to pin responsibility on individuals within the
corporate structure? He suggests that suggests that corporate responsibility must link to corporate control
(Ratner 2001: 518). In the web of modern economic organization of a corporation, it is important to
spell out control within corporate structures.

For example, suing an individual rather than a corporation would mean,
that the individual may not be able to afford damages arising from massive human rights
violations. Holding the corporation responsible will ensure that assets could be seized to pay for such
damages. Besides, shareholders will have an incentive to ensure that the corporation does not violate
its human rights obligations.

THE NEED FOR A NEW FRAMEWORK:

There is no legal framework that addresses actions of corporations in
host states to the human rights of citizens in those countries. International law governs activities
between home state and host state. International investment /economic law govern the relationship
between host states and corporations, in addition to this, there are bilateral investment
treaties that safeguard such investments. Human rights laws within states, govern the activities of
the state and its impact on its citizens. To be sure, many developing countries do not have exacting
standards of Western human rights laws.

What is therefore missing is a law that regulates activities of
foreign corporations and its impact on citizens in host states. Such regulations may not be fully served by
domestic frameworks, due to the inherent limitations in them. There are states that have no provision
in their domestic law to hold corporations liable, therefore, corporations must subject to
responsibilities under international law.

Some of the questions that a future framework must consider, include
whether the international regulation of corporates is the only way forward or if domestic courts
must play a greater role? Should the state play a greater role in protecting human rights
against third party abuses of private actors and whether the responsibility must lie with the home state or
the host state?

Human rights are seen as too fragile to be left to domestic laws and
therefore it is widely acknowledged that an external law is needed to be imposed to safeguard
these rights. It has been argued that domestic law cannot effectively “constrain” state action.
At the same time, states would never accept international regulation of private entities (Ratner
2001: 469). Having international norms would mean that governments could lose regulatory powers. This
coupled with no enforcement -voluntary code of conducts of corporations will become
problematic.

Conventions such as the OECD convention do not impose obligations on
corporations directly. They do so, via the states. By not imposing direct responsibility on
corporations through international law, conventions like the OECD, expose the process of fixing
responsibilities to the vicissitudes of national laws.

CONCLUSION:

There may not be any one approach to get corporations to respect human
rights obligations. John Gerard Ruggie, Secretary-General's Special Rapporteur for Business and
Human Rights, who formulated, the Guiding Principles on Business and Human Rights,
believes there is a reconstitution of the global public domain, where the very system of states, is
becoming embedded in a non-state

based public domain. (Ruggie 2004: 32).

Ruggie believes that there is a new transnational world of transaction
flows that operate in near real-time (Ruggie 2004: 6), and that these corporations have left
behind “the old inter-national world of arms-length economic transactions and traditional
international legal mechanisms”. This opens up challenges and constraints for governance.

According to the guiding principles on the corporate responsibility to
protect human rights, businesses are expected to respect human rights wherever they operate,
“independent of States’ abilities and/or willingness to fulfil their own human rights
obligations.” It seeks to ensure that business mitigate and where appropriate remedy such violations.
Further, the principles specify that the responsibility of businesses to respect human rights is distinct
from questions of legal liability and enforcement, which are governed by national law provisions in
relevant jurisdictions. It therefore calls for businesses to have additional standards depending
on the context.

Ruggie has noted an increased potential for companies to be held
liable for international crimes –with responsibility imposed under domestic law, but reflecting
international standards of individual responsibility, as expressed in international criminal tribunals
(Ruggie 2007: 830) In the long term, given the diversity of challenges for governance and
the reality of globalization, the ‘Ruggie approach’ of doing away with distinctions of corporations as
subjects or objects of international law may be work better, for one hopes that it will have
a normative impact on the conduct of corporations.

He says, that although it may be promising to expand the
“international regime horizontally” by codifying duties of states to protect human rights against corporate
violations, he believes, international instruments can also play a significant role. (Ruggie
2007:29)

He urges that working on an individual liability model is not the only
answer for larger “systemic imbalances in the global system of governance”. He calls for
collective action. He calls for structural changes by reforming institutions. He is of the view that soft law
hybrid arrangement, like the Kimberley Process that involves states, companies and consumers, is an
innovative concept.

However, letting private actors craft regulation will not be without
complication. There is a counter point to splitting regulation as private and public. Feminist legal
scholars have long argued that it is fraught with risks for it may affect vulnerable groups. Those at the
receiving end of a non-binding regulation in the ‘private’ sphere, could be vulnerable without the
recourse to contest such regulations. Feminists believe that concepts of public and private are
highly political. They interact as ideological channels for the allocation of societal resources,
including the resources of power and authority. (Fineman 2005: 21)

Finally, Ruggie recognizes and acknowledges that some of the solutions
could lie beyond the legal sphere. Systems of legal compliance and broader dynamics of social
change could forge such a change. Drawing on Amartya Sen, he believes that any successful regime
will need to “motivate, activate, and benefit from all of the moral, social, and economic
rationales” that can affect the behavior of corporations. Just as human rights groups urge a shift
from voluntarism, Ruggie appeals to this community to look “beyond compliance”. Sen has said that the
concept of human rights has been prematurely locked in a narrow box of an entirely legal approach.
(Sen 2006: 2927). Sen underscores the importance of public reasoning in the “recognition of
human rights, and for their

realization and advancement.”

We live, after all, in an age of rights. (Baxi 1995: 6). There has
been a continuous confrontation between an “emergent culture of rights and the entrenched culture of
power”. A critical source of human rights, is the consciousness of the peoples of the world, who
have waged persistent battles for self-determination against racial discrimination, gender-based
aggression, denial of basic rights and environmental degradation (Baxi 1995:6) In the fight to make
corporations accountable, it may be no different.

About Me

I am a reporter from New Delhi working in Switzerland. A graduate from New York University's Business and Economic Reporting program, I now work as a freelance business journalist. Also pursuing a masters in development studies in Geneva.
http://pritipatnaik.org/